Credit Card Companies Come Under Fire on Capitol Hill
Thursday, January 25, 2007SUSIE GHARIB: On Capitol Hill today, the chairman of the Senate Banking Committee took aim at the credit card industry. As Stephanie Dhue reports, credit card issuers are under pressure to change their billing, marketing and disclosure practices.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Credit card companies charged customers more than $17 billion in penalties and late fees last year. Lawmakers say while the charges may be legal, some are unfair. Senate Banking Committee Chairman Chris Dodd put the industry on notice.
SEN. CHRIS DODD, CHAIRMAN, SENATE BANKING COMMITTEE: If you currently engage in any business practice that you would be ashamed to discuss before this committee, then I would strongly encourage you to cease and desist that practice.
DHUE: The practices flagged by the committee include aggressive marketing to students, the elderly and people with shaky credit; universal default, which triggers a higher interest rate if a customer is late on any bill or has a credit score lowered; and double-cycle billing, where companies charge interest on debt that was paid off in a previous balance. Last week, JPMorgan Chase stopped double cycle billing, but today its marketing VP Carter Franke defended the practice.
CARTER FRANKE, CHIEF MARKETING OFFICER, JP MORGAN CHASE: I do believe it is a fair practice. It was a confusing practice and because of that and because we always want to ensure that our customer is being treated with all of the clarity that we can, we decided to move away from it.
DHUE: Critics say the industry preys on customers who stumble making payments and then hits them with 30 percent interest rates and other fees. Attorney Michael Donovan has filed lawsuits against credit card companies.
MICHAEL DONOVAN, ATTORNEY, DONOVAN AND SEARLES: The credit card is one of the only contracts throughout the common law of the United States and the common law of any country in which the superior bargaining entity has the right to change its terms at any time.
DHUE: Credit card companies defended their business. Capitol One President John Finneran points out many credit card holders don't carry a balance, and consumers benefit from the convenience of plastic.
JOHN FINNERAN, PRESIDENT, CORPORATE REPUTATION, CAPITAL ONE FINANCIAL: We don't build a business model on tricks and traps. We're all in the business of trying to attract and retain good customers.
DHUE: Senator Dodd promises to keep the pressure on the industry. His next target, the increasing fees credit card companies charge the merchants who accept their cards. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
